Sunday, December 27, 2015

Why I hate the "skills shortage" debate

Few econ policy debates are as fraught, or as confused, as the debate over "skills shortages" in the labor market. This debate occasionally crops up in discussions of the labor market as a whole, i.e. interpreting shifts in the Beveridge Curve. But it mostly comes up in the context of high-skilled or STEM labor.

The main problem with this discussion, as I see it, is that no one really knows what a "shortage" of skilled or STEM labor is supposed to mean. Here are some possible alternative meanings:

1. The labor market for skilled/STEM workers is not clearing, due to government policy; demand is outstripping supply. (This is the classic "econ 101" definition of "shortage").

2. There has been an increase in demand for STEM workers in the U.S. not matched by an increase in supply, causing wages in those occupations to rise.

3. A policy-engineered increase in the supply of STEM workers would raise overall U.S. GDP per capita.

4. A policy-engineered increase in the supply of STEM workers would reduce income inequality in the U.S.

5. A policy-engineered increase in the supply of STEM workers would raise the relative power of the U.S. nation-state relative to rivals like China.

6. An increase in the amount or quality of STEM education in the U.S. would raise overall U.S. GDP per capita.

7. An increase in the amount or quality of STEM education in the U.S. would reduce income inequality in the U.S.

8. An increase in the amount or quality of STEM education in the U.S. would raise the relative power of the U.S. nation-state relative to rivals like China.

I'm sure I could think of more. But in addition to these multiple definitions, there is the question of time horizon. Are we talking about what has happened since 1980? Since 2000? Or since 2010?

There is also the question of the size of the posited effects in each case. Do we think that a bit more computer science education, on the margin, would be a good thing for American schools, or do we think that we should be training our workforce en masse to be knowledge workers?

Finally, there is the question of domain size. Who is a STEM worker? Are we just talking about software engineers in Silicon Valley? Are we talking about anyone who majored in a STEM field? Are we talking about anyone who works with a computer on a daily basis?

This huge proliferation of hypotheses pretty predictably leads to a massively muddled debate. Some pieces focus on one definition of the "shortage" hypothesis to the exclusion of others. Others lump many versions together and treat them as if they're the same thing.

But despite the hopeless confusion, people get very passionate about this debate. To many on the left, emphasis on STEM education must seem like an attempt at a "third way" substitute for redistributionary policy, or an attempt by employers to make employees shoulder more of the financial burden of training. It also might seem like an attempt by anti-interventionists to substitute "structural" explanations for the Great Recession for explanations based on aggregate demand. To those on the neoliberal right, denial of the importance of STEM must seem like a minimization of the importance of productivity in national wealth, or even a refusal to focus on total national wealth at all. Supporters of high-skilled immigration (including Yours Truly!) see the denial of "STEM shortages" as the beginning of an attempt to restrict high-skilled immigration in order to boost the incomes of the upper middle class.

So there are definitely some Robertsian effects at work here. That's going to make the debate even more difficult to conduct in a reasonable, rational manner.

So is there a STEM skills shortage in the U.S.? The answer is that I don't know. I've looked into a few of these sub-hypotheses, but there are just too many. In my opinion, we should be focusing on the marginal policy effects of A) an increase in high-skilled immigration, and B) a tilting of school curricula toward math and engineering. I will search the literature for quasi-experimental evidence on these policy effects, and report back what I find. But whatever I find is unlikely to satisfy most of the people involved in this argument.

29 comments:

-I increasingly doubt this is a good thing for the U.S. Maybe it'd be good so long as those high-skilled immigrants can't vote or be employed in the media. Maybe I'm wrong (after all, I have an immigrant background, and I'm smart!), but I'm worried.

We are vastly overproducing physicists (and their offshoots, such as astronomers) and biologists. We are vastly underproducing computer scientists. Those physicists are largely trained use public money but exit the field after grad school at very high rates, going into things like finance, which creates a negative externality. The last people working in finance should be people who are trained that the physical universe can be wrestled to the ground with theory and experiment.

Maybe. Or maybe the finance field and economics in general need more people actually TRAINED in "wrestling the physical universe to the ground with theory and experiment". I'd actually like to hear your alternative to theory and experiment as a way of moving knowledge forward.

Full disclosure: I am one of those physicists, though my wrestling was never the best.

The answer is quite simple and has been addressed on this blog several times: humans are not photons; financial assets have no intrinsic value; and, you haven't been taught ketchup economics.

As for the academy as currently funded, it overproduces physicists (and astronomers and biologists), in part because you, as students, largely do not pay the direct cost of your education; the public does. In turn, because you all cannot get jobs in your discipline, you (rightly) turn elsewhere. Now, if this excess supply wound up learning Python and building recommender systems for Amazon, there would be little in the way of a negative externality. But we know that is not what happens.

A benevolent social planner would, among other things, dramatically decrease the amount of funding for physics and biology, re-allocating those dollars to subsidizing computer science, the mechanical engineering of our age.

(And frankly physicists' empirical training, relative to, say, an applied microeconomist, isn't that impressive. Because photons do not have agency, you cannot even conceive of endogeneity bias. And K-means clustering with pretty colors isn't that informative.)

As one of those (SB, MS Comp. Sci.), albeit from a previous generation, my impression was that, compared to MBAs, Silicon Gulch _ACTED_ as though we were underproducing MBAs and overproducing comp. sci. types. (I.e., MBAs got paid two to five times what we got paid.)

Even worse, most of my comp. sci. acquaintances couldn't do anything other than comp. sci. and were stuck. (I got an MA in Japanese Literature. and escaped to the translation industry, and I'd guess that some number of comp. sci. grads also figured this out and went on to Bschool.)

If you believe wages provide some kind of signal, then it's pretty clear there's a glut not a shortage (http://mikethemadbiologist.com/2015/10/06/wages-and-the-supposed-stem-shortage/). Also, at least in the biomedical sector, jobs have pretty much leveled off over the last few years (here, here, and here).

Mike indicates his definition in his first sentence. (I like Mike's blog too.) This, like most of the numbered points in the original post, is not a definition: "An increase in the amount or quality of STEM education in the U.S. would raise overall U.S. GDP per capita."

Mainstream economists in the 1920s, before the work of Edward Chamberlain and Joan Robinson, had trouble making sense of talk of gluts and shortages. Afterwards, one might hope, not so much.

On the other hand, educated economists have known for decades that explaining wages and employment by labor supply and demand has no empirical or theoretical support. It is also senseless to say that wages and employment would be determined by supply and demand if not for market power, asymmetric information, transactions costs, search costs, etc. See the link for my name for posts with examples and references making this point.

what would be considered fair wages?maybe noah should write a small article to discuss this because I think I get it, but some seem not to understand it the same way I do: the wages are "fair" if they weren't the US would not be attracting people from outside. the wages are fair on a global scale, and that's the reality of many STEM jobs: competition is worldwide, not just nationwide.

Noah, here is a post that actually references definitions based on the US Bureau of Labor Statistics https://normsaysno.wordpress.com/2015/12/24/confusion-in-job-titles-further-muddies-the-waters/There is not a shortage of computer science, nor STEM graduates in general in the USA. See in particular the comment by vbierschwale.

My definition of skills shortage, for what it’s worth, is the same is the meaning of the word shortage when applied to anything else, which is something like:

“Demand currently exceeds demand with the result that suppliers are currently able to earn excess profits”.

In the case of skills, that translates as something like, “Demand for skills X,Y & Z are such that the return on training costs (in terms of pay for those possessing those skills) is currently above the standard return on capital.”

STEM jobs take longer to fill than other positions, and STEM workers also earn more, in agreement with #2. However, this is one of those topics where is no clear-cut answer, hence why there is so much debate.

When I've talked to people, particularly employers, I get a definition of the STEM shortage that looks something like #2:

"There has been an increase in demand for STEM workers in the U.S. not matched by an increase in supply, causing wages in those occupations to rise *over the prevailing wage for people with a non-STEM college degree*.

The employers claim that they would hire more STEM workers if they could hire them at the salaries they'd pay for graduates with degrees in English Lit, for example. And, they're big fans of skilled immigration and increased STEM emphasis in schools/universities precisely because they think both will reduce the premium that they have to pay for STEM workers.

To me, this explains the feelings I've encountered among STEM workers in my field (Industrial/Commercial Chemistry) that non-managerial STEM wages have been roughly stagnant for decades, and that the only clear path to a decent and steadily improving salary is to move out of the lab and into management.

I agree. There is also the issue of training. If there is a shortage of workers with a given skill are the companies training workers or are they really just asking for more intelligent workers?Are companies dividing up jobs so that less skilled workers can do them? Complaints about a shortage of skills workers should be ignored for these reasons and more.

This whole STEM "shortage" business is one giant scam and it has been going on for years.

If employers want more STEM graduates all they have to do is pay more. Years ago I abandoned a path of math / physics / computer programming and went to law school instead of doing a graduate degree in computer science. Why? Because the career prospects and money looked better!

I remember fifteen years ago Nortel was busy lobbying the Federal and Provincial governments in Canada to pay for more STEM graduates because they were "desperately" needed. What happened? Nortel went broke a few years later and laid off everyone and defaulted on its pension obligations to all those STEM graduates they had lured in.

If I had followed the STEM path I might well have wound up as an unemployed and unemployable fifty year old ex-Nortel engineer.

The best that can be said of using temporary foreign workers for STEM work is that: (1) someone else has paid to train them; (2) they can be deported when they are thirty-five and their best years are behind them.

It's simple economics. There is no STEM shortage. If there were, we'd see rising wages in STEM fields. The wages, outside of a handful of specialty areas, have been flat for decades. When STEM wages start rising economists can start talking about a shortage of STEM workers. This is Econ 101.

Besides, if it were worth while, a company could easily create STEM workers. Most computer people in the 60s and through the 80s weren't CS majors. They learned software, and sometimes hardware, on the job. Polaroid used to hire non-STEM women from top women's colleges and train them as chemists back in the 1960s. IBM basically told new hires to forget everything they ever learned and trained people from the ground up. If there were a shortage of STEM workers, we'd see a lot more on the job training.

The stagnant wages have had an impact on our economy's future however. The best students are not going into STEM anymore. They are moving into better paid fields like finance and management. I don't believe in any mechanistic model of human behavior, but money can be motivating.

What Kaleberg and Absalon said are true, having lived and worked in Silicon Valley. Largely the "need more STEM" workers is employer propaganda. That said, I think long term (25 years) having more engineers and less finance majors is probably a good thing for the US economy, and various studies for advanced economies show this is true. But it's not enough that we train engineers to recite textbook solutions: we need to reform our patent laws so the inventor gets compensated more than just the routine salary they now get (Google, akin to 'moral rights' in copyright, what is done on a much smaller scale in both Japan and Germany IP patent law).

Most of them work in areas like accounting, keeping the books, preparing budgets and forecasts for various business units, helping prepare taxes, helping with audits, monitoring revenues and expenditures for their business unit, helping managers figure out what kinds of prices and price discounts they can afford to offer to new customers, etc.

What is it that makes you think such work should not be done? Does budgeting offend you for some reason?

I think the real problem isn't education of young people, but continuing education of the entire workforce. Most American workers don't have any real knowledge of computers: they learn how to perform a few basic tasks at their workstation but if there's any variation from their day to day norm they are powerless to deal with it, so you end up with a worker who is stuck doing nothing waiting for tech support to show up because he doesn't know how to reconnect the external hard-drive or printer that was unmounted by a bad windows update.

It's ridiculous how many times a co-worker has called me in a panic complaining that a program has disappeared from their computer, when the program was still installed, and the real problem was they weren't paying attention and accidentally put the start icon from their desktop into their recycle bin.

Har har. Have you ever hired a CS grad? We have always had more luck hiring non cs majors who actually had to use programming in their major. CS students typically never "use" their skills and never learn anything practical. They need to have their hands held to accomplish anything.

Har har. Have you ever hired a CS grad? We have always had more luck hiring non cs majors who actually had to use programming in their major. CS students typically never "use" their skills and never learn anything practical. They need to have their hands held to accomplish anything.

As a retired STEM worker (electrical generation) I saw the degradation of the workplace over the last thirty years, making the prospect of staying in the field, or entering it, less than optimal.

There was a decade or so where senior staff with solid experience were induced to take early retirement. Bye-bye institutional memory and experienced mentors. Formal employment replaced by term positions and contract work, benefits and pensions undercut by acquisitions or bankruptcy restructuring, specialized fields that require long education, suddenly vanishing as tech changes made them obsolete. Exploding costs for education, including the retraining that was supposed to make everything all better. And of course, temporary foreign workers.

I know, these didn't just affect the STEM fields, but STEM work requires more than the usual level of education, with long lead times that make it hard to predict whether that specialty would still be in demand after graduation.

Why should US business expect people to undertake long, expensive, finicky training on the off chance that they might need someone with that training in 4-8 years? Only because they feel entitled to access just-in-time supplies of people to fit their business plan.

This really hits the nail on the head. Put simply, the model of a train once, use that skill for a lifetime has been abandoned by business (who expect actual skills - too new to be taught in college - acquired from the ether - and will abandon workers when their skills are no longer up to date).

Managerialism really is a big part of the problem, because it treats people as interchangeable parts and not people (with a past and a future).

I once thought that outsourcing firms might end up being a solution (a firm who specialised in providing people and so had an interest in training them) but then short term managerialism (plus the conflict of interests between them and their clients) ruined that possibility as well.

Economics has traditionally has used comparitive statics and static equilibrium and this is still very much a controlling mindset amongst economists. They really need to think much more about finite lives in order to get a deeper understanding of the world (one reason that I think that agent-based simulation is the approach for the future).

"Supporters of high-skilled immigration (including Yours Truly!) see the denial of "STEM shortages" as the beginning of an attempt to restrict high-skilled immigration in order to boost the incomes of the upper middle class."

Indeed. I think there is a serious problem with the quality of economics and finance professionals in the United States. And I think they are overpaid.

Therefor, I think that that the United States should actively recruit economics and finance professionals from around the world with a view to driving up quality and driving down cost. The rest of us will be better off if only we had smarter and cheaper university professors and bankers.